Humbugged Nation

"...if you were to peel back the changes that were made in the Consumer Price Index (the inflation rate) going back to the Carter years, you'd see that the CPI would now be 3.5 to 4 percent higher -- meaning that, because of lost CPI increases, Social Security checks would be 70 percent greater than they currently are." The preceding quote is from an excellent article in Harper's Magazine for May, Numbers Racket: why the economy is worse than we know. It is a must-read. It shows the gradual corruption of government statistics, the ones we use to gauge unemployment, inflation, balance of trade, and everything in between. Buy the magazine (not available online to non-subscribers). It's well worth reading.

Some excerpts:
"...The real numbers, to most economically minded Americans, would be a face full of cold water. Based the criteria in place a quarter century ago, today's U.S. unemployment rate is somewhere between 9 and 12 percent; the inflation rate is as high as 7 or even 10 percent; economic growth since the recession of 2001 has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession. If what we have been sold in recent years has been delusional 'Pollyanna Creep,' what we really need today is a picture of our economy ex-distortion. For what it would reveal is a nation in deep difficulty not just domestically but globally."

"Undermeasurement of inflation, in particular, hangs over our heads like a guillotine. To acknowledge it would send interest rates climbing, and thereby would endanger the viability of the massive buildup of public and private debt (from less then $11 trillion in 1987 to $49 trillion last year) that props up the American economy. Moreover, the rising cost of pensions, benefits, borrowing, and interest payments -- all indexed or related to inflation -- could join with the cost of financial bailouts to overwhelm the federal budget. As inflation and interest rates have been kept artificially suppressed, the United States has been indentured to its volatile financial sector, with its predilection for leverage and risky buccaneering."

"Arguably, the unraveling has already begun. As Robert Hardaway, a professor at the University at Denver, pointed out last September, the subprime crisis 'can be directly traced back to the (1983) Bureau of Labor Statistics decision to exclude the price of housing from the Consumer Price Index...With the illusion of low inflation inducing lenders to offer 6 percent loans, not only speculation run rampant on the expectation of ever-rising home prices, but home buyers by the millions have been tricked into buying homes even though they only qualified for the teaser rates.' Were mainstream interest rates to jump into the 7 to 9 percent range -- which could happen if inflation were to spur new concern -- both Washington and Wall Street would be walking in quicksand. The make-believe economy of the past two decades, with its asset bubbles, massive borrowing, and rampant data distortion, would be in serious jeopardy. The U.S. dollar, off more than 40 percent against the euro since 2002, could slip down an even rockier slope..."

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We all are bummed out about the economy. And we're supposed to set aside time to read some egghead's lengthy magazine article to make us more miserable? I say, it's the weekend, let's forget about problems for a while, and all head down to the DQ to order Blizzards.

Patience is a great virtue.

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